How government plans to finance its R48 bn deficit

How government plans to finance its R48 bn deficit

The finance minister delivered his maiden budget speech in Parliament on Wednesday afternoon.


Finance Minister Malusi Gigaba has announced a range of measures to finance government's R48.2 billion deficit.

The measures include a tax increase, budget cuts and an increase in Value-added tax, among others.

"Taken together, and supported by a strengthened growth outlook, these interventions will stabilise public finances," Gigaba told parliament.

The measures include "expenditure reductions approved by Cabinet amounting to R85 billion."

Government further hopes to raise R36 billion through various tax measures.

- An increase in the value-added tax rate from 14 per cent to 15 per cent,

- A below inflation increase in the personal income tax rebates and brackets, with greater relief for those in the lower income tax brackets,

- An increase in the ad-valorem excise duty rate on luxury goods from 7 per cent to 9

per cent,

- A higher estate duty tax rate of 25 per cent for estates greater than R30 million,

- A 52 cents per litre increase in the levies on fuel, made up of a 22 cents per litre for the general fuel levy and a 30 cents per litre increase in the Road Accident Fund Levy, and

- Increases in the alcohol and tobacco excise duties of between 6 and 10 per cent.

Gigaba says personal income tax has been increased significantly in recent years, while VAT has remained unchanged since 1993.

"We therefore decided that increasing VAT was unavoidable if we are to maintain the integrity of our public finances," says Gigaba.

This an announcement was strongly condemned by some, including DA leader Mmusi Maimane, who describe the VAT hike as "an insult the poor".

Gigaba however announced mitigating measures.

He says the bottom three personal income tax brackets will get more returns, while social grants will also go up.

"The current zero-rating of basic food items such as maize meal, brown bread, dried beans and rice will limit the impact on the poorest households."

Jean Lombard, the Chief Executive of Recurring Savings at Sanlam Personal Finance, agrees these measures will protect the poor from the VAT hike, while the middle to higher income learners will feel the pinch.

Lombard called it a "responsible budget" as it "indicates that the new leadership is willing to take unpopular decisions".

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